Revisiting Nonlinear Inflation – Growth Relationship: A Multidimensional Nonlinear Robust Approach

Abstract

The changes in aggregate demand or aggregate supply vibrate economic activities in the goods market, and it further affects market general price level. Therefore; one of the prioritised objectives of the policymakers in any economy is to manage the price level. Steady rising prices assist producers in expansion for higher profits, while high inflation discourages consumers. Based on this argument; inflation growth dilemma using quantile on quantile (QQ Model) approach for the 73 selected economies of the world is going to be investigated in this study. The study has found that general prices have a nonlinear and significant impact on GDP per capita in the 73 selected countries. This nonlinearity not only depends on the level of general prices but also depend on the level of GDP per capita and development. The contour plots provide the optimal strategy to minimize the negative effects of inflation on GDP.